Fitch Ratings says Russian property development companies are likely to be amongst the worst-hit by a deteriorating financing environment. This is because of a large share of short-term debt in their liquidity profiles, their often significant operational cash outflows, limited cash-on-balance sheet and a virtual absence of meaningful committed un-drawn facility headroom.
“At a time when the Russian government has had to intervene to support domestic financial institutions and with increasing question marks over the ability and appetite of all but the largest Russian domestic banks to maintain current funding levels to the real estate sector, liquidity risks associated with Russian property developers have never been higher,” says Julian Crush, Senior Director in Fitch’s Corporates team. The agency notes yesterday’s positive news that state-owned bank VneshEconomBank (VEB) is to provide up to USD50bn to help refinance Russian corporate debt, but regards this as short-term support rather than a long-term solution to liquidity risks in Russia.
To date, preparations by the management of some Russian development companies have been inadequate to deal with the financing market they now find themselves in. Especially for some commercial property- focused developers, there is a fundamental mismatch of assets (long-term) and liabilities (short-term). A lack of both cash-on-balance sheet and committed un-drawn facilities has meant that Russian developers are now highly exposed to the decisions of domestic and international lenders to refinance (or otherwise) often substantial amounts of maturing short-term debt. Periodic put options, often included in domestic bond issues, and now more likely to be exercised, could also add to short-term debt needing to be repaid. Repor ...